UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

                      For the Quarter Ended March 31, 2006

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                       Commission File Number: 000-1084047

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its charter)

      California                                                95-4691878
      -----------                                               ----------
  (State or Other Jurisdiction                                (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

          1413 South Howard Avenue, Suite 220, Tampa, FL                33606
          ----------------------------------------------                -----
              (Address of Principal Executive Offices)                Zip Code)

                                 (813) 387-3310
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:     None

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.001
par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

There were 56,455,379 shares of common stock, $0.001 par value, outstanding as
of May 24, 2006.

                                       1
<PAGE>


                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                                   FORM 10-QSB

                          QUARTER ENDED MARCH 31, 2005

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page

                         PART I - FINANCIAL INFORMATION

<S>                                                                                                  <C>
Item 1.  Financial Statements

     Condensed Consolidated Balance Sheet as of March 31, 2006 (Unaudited)
       and December 31, 2005..................................................................        3

     Condensed Consolidated Statements of Operations (Unaudited) for the Three
       Months Ended March 31, 2006 and 2005...................................................        4

     Condensed Consolidated Statements of Cash Flow (Unaudited) for the Three
       Months Ended March 31, 2006 and 2005...................................................        5

     Notes to the Condensed Consolidated Financial Statements (Unaudited).....................        6

Item 2.  Management's Discussion and Analysis of Financial Condition and
     Results of Operations....................................................................       13

Item 3.  Controls and Procedures..............................................................       15

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings....................................................................       16

Item 3.  Defaults upon Senior Securities......................................................       17

Item 6.  Exhibits and Reports on Form 8-K.....................................................       17

Signatures    ................................................................................       18

Index to Exhibits.............................................................................       19
</TABLE>

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEET
                                 March 31, 2006
                                   (UNAUDITED)
                                                                    (Unaudited)
                                                                      March 31,
                                                                        2006
                                                                    ------------

Cash                                                                $    206,517
Notes receivable                                                         117,008
                                                                    ------------
Total current assets                                                     323,525
                                                                    ------------

PROPERTY AND EQUIPMENT, NET                                               30,925
DEPOSITS                                                                  35,159
                                                                    ------------
Total assets                                                        $    389,609
                                                                    ============


Accounts payable and accrued expenses                               $    831,799
Derivative financial instruments                                          57,871
Convertible debentures                                                    41,918
                                                                    ------------
Total current liabilities                                                931,588
                                                                    ------------

COMMITMENTS AND CONTINGENCIES

Preferred stock, 25,000,000 shares authorized, $1.00 stated value
Series A, 1,500,000 shares authorized, 450,000 shares outstanding       450,000
Series B, 3,000,000 shares authorized, none outstanding                      --
Common stock - authorized, 100,000,000 shares of $.001 par
value; issued and outstanding, 56,255,379 shares                         56,255
Additional paid-in capital                                           18,563,716
Accumulated (deficit)                                               (19,611,950)
                                                                   ------------
Total stockholders' equity                                             (541,979)
                                                                   ------------
Total liabilities and stockholders' equity                         $    389,609
                                                                   ============


                             See accompanying notes.

                                       3
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)

                               INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                                          CONSOLIDATED STATEMENTS OF EARNINGS


                                                        For the Three Months
                                                           Ended March 31,
                                                   -----------------------------

                                                       2006            2005
                                                   ------------    ------------
REVENUE
     Services revenue                              $         --    $    155,200
     Product sales                                           --         113,219
     Other revenue                                           --           8,600
                                                   ------------    ------------
     Total revenue                                           --         277,019

COST OF REVENUE
     Cost of services revenue                                --           6,855
     Cost of product sales and other revenue                 --           4,964
                                                   ------------    ------------
     Total cost of revenue                                   --          11,819
                                                   ------------    ------------

GROSS PROFIT                                                 --         265,200
                                                   ------------    ------------

OPERATING EXPENSES
     General and administrative                         239,746         857,029
     Commissions and other selling expenses                  --         162,296
                                                   ------------    ------------
     Total operating expenses                           239,746       1,019,325
                                                   ------------    ------------
INCOME (LOSS) FROM OPERATIONS                          (239,746)       (754,125)
                                                   ------------    ------------

OTHER INCOME (EXPENSE) NET
     Other income                                         1,586           1,491
     Derivative income                                    7,320              --
     Interest expense                                    (8,636)             --
     Interest income, deposits                               28              --
     Interest income, financing arrangements                 --          11,429
                                                   ------------    ------------
OTHER INCOME (EXPENSE) NET                                  298          12,920
                                                   ------------    ------------

INCOME BEFORE INCOME TAXES                             (239,448)       (741,205)

INCOME TAXES                                             (1,703)             --
                                                   ------------    ------------

NET INCOME (LOSS)                                      (241,151)       (741,205)

UNDECLARED PREFERRED STOCK DIVIDENDS                     (4,500)         (4,500)
                                                   ------------    ------------

INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS    $   (245,651)   $   (745,705)
                                                   ============    ============

BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE   $      (0.00)   $      (0.01)
                                                   ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN BASIC AND DILUTED PER SHARE CALCULATION      56,067,036      55,586,198
                                                   ============    ============


                             See accompanying notes.

                                       4
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (UNAUDITED)
          INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                          For the Three Months
                                                            Ended March 31,
                                                        ------------------------
                                                          2006          2005
                                                        ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash flows from operating activities                $ 192,854    $(602,724)
                                                        ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Cash received on notes receivable from financed sales         333      242,617
Increase in notes receivable from new financed sales           --     (222,601)
Investment                                               (117,008)      (5,352)
Purchase of fixed assets                                       --      (19,665)
                                                        ---------    ---------
Net cash flows from investing activities                 (116,675)      (5,001)
                                                        ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable                                      --      (20,833)
Increase in notes payable                                 100,000           --
Payments on capital lease obligations                          --       (1,889)
                                                        ---------    ---------
Net cash flows from financing activities                  100,000      (22,722)
                                                        ---------    ---------

NET INCREASE (DECREASE) IN CASH                           176,179     (630,447)

CASH AT BEGINNING OF PERIOD                                30,338      876,472
                                                        ---------    ---------

CASH AT END OF PERIOD                                   $ 206,517    $ 246,025
                                                        =========    =========

                             See accompanying notes.

                                       5
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


(1) Basis Of Presentation

The accompanying unaudited financial statements have been prepared in accordance
with  generally  accepted  accounting  principles  (GAAP) for interim  financial
information  and Item 310(b) of  Regulation  S-B. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management,  all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.

The  results  of  operations  for the  periods  presented  are  not  necessarily
indicative  of the  results  to be  expected  for the  full  year.  For  further
information, refer to the financial statements of the Company as of December 31,
2005, and for the two years then ended,  including notes thereto included in the
Company's Form 10-KSB.

(2) Earnings Per Share

The Company  calculates  net income (loss) per share as required by Statement of
Financial  Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share is  calculated  by dividing  net income  (loss) by the weighted
average number of common shares  outstanding  for the period.  Diluted  earnings
(loss) per share is  calculated  by dividing  net income  (loss) by the weighted
average  number  of  common  shares  and  dilutive   common  stock   equivalents
outstanding. During periods when anti-dilutive commons stock equivalents are not
considered in the computation.

(3) Stockholders' (Deficit)

In January 2006 the Company  issued an  aggregate of 1,300,000  shares of common
stock for services  rendered.  The shares were valued at their fair market value
of $39,000 on the date of issue which amount had been accrued in December 2005.

In January  2006 the Company  issued an  aggregate  of 950,495  shares of common
stock in order to cancel its contract with its CEO "Without Cause" as defined in
his  employment  contract.  The shares were valued at their fair market value of
$28,515 which amount was charged to operations.

In January 2006 the Company  issued an  aggregate of 3,492,000  shares of common
stock in order to  eliminate  accrued  wages due to  officers  in the  amount of
$174,600 which approximated the fair market value of the shares.

(4) Commitments, Concentrations and Contingencies

      (a)   Leases:

            Future minimum lease payments under  noncancelable  operating leases
            (with  initial  terms in  excess of one  year)  and  future  minimum
            capital lease payments as of March 31, 2006, are as follows:

                                       6
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


                                                                  Operating
                      Year ending December 31:                     Leases
                                                           ---------------------
                      2006                                 $              75,150
                      2007                                                40,100
                      2008                                                    --
                      2009                                                    --
                      After 2009                                              --
                                                           ---------------------
                      Total noncancelable lease payments   $             115,250
                                                           =====================


            Rent expense under all  operating  leases for the period ended March
            31,  2006 and  2005,  was  $15,701.  In  December  2004  our  former
            subsidiary Triad Media,  Inc. entered into a lease for approximately
            3,606 square feet in Kansas  City,  Missouri  with a term  beginning
            February  1, 2005 and  ending  January  31,  2010 and a base rent of
            $3,756 per month  which the  Company  guaranteed  on behalf of Triad
            Media,  Inc.  Following  the sale of Triad Media in April 2005,  the
            Company accrued for this potential  liability which accrual amounted
            to $59,892 at December 31, 2005.  On February 28, 2006,  the Company
            was informed that Triad Media,  Inc. had abandoned the premises.  We
            are currently negotiating a settlement payment with the landlord but
            there can be no assurance that such  negotiations will be successful
            or that the amount accrued thus far will be sufficient.

      (b)   SEC Investigation:

            On June 24, 2003, the Securities  and Exchange  Commission  issued a
            formal order of  investigation  authorizing  subpoenas for documents
            and  testimony  in  connection  with the  investigation  of  certain
            securities  matters.  On April 8, 2005,  the  Independent  Committee
            appointed by the Board of Directors of the Company  delivered to the
            SEC its report based on its internal investigation.  The Company has
            and  intends  to  continue  to fully  cooperate  with the SEC in its
            investigation.

      (c)   Litigation:

            SEC Investigation

            On June 24, 2003 the  Securities  and  Exchange  Commission  ("SEC")
            issued   a   formal   order  of   investigation,   authorizing   the
            investigation of certain securities matters. The SEC staff has taken
            the  testimony  of  certain  officers  and has  informed  us that it
            intends to take additional testimony.  The SEC staff has also issued
            additional requests for the voluntary production of documents. Prior
            to the issuance of the order, we had voluntarily  provided documents
            and information to the SEC staff in response to informal, non-public
            inquiries by the staff. On April 8, 2005, the Independent  Committee
            of  the  Board  of   Directors   turned  over  the  results  of  its
            investigation  to the SEC. We intend to continue to fully  cooperate
            with the SEC in its investigation.

            Prosper, Inc. Complaint

            Subsequent to the spin off of EPMG, as discussed  above,  the former
            principals,  under the new name of Prosper,  Inc.  filed a complaint
            that seeks a refund to the  benefit  of  Prosper of certain  reserve
            funds  amounting to $580,000 that are due to former  vendors.  Under
            the EPMG  Settlement  Agreement,  we agreed to pay certain  reserves
            potentially owing to third-party vendors upon specified  conditions.
            The lawsuit  alleges  that we have  breached the  obligation  to pay
            these  reserves,  but we  contest  that  the  conditions  for  these
            payments have been  satisfied  and/or contest the amounts and payees
            of the payments that are alleged to be owed by us.

                                       7
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


            Although we believe that these allegations do not have any merit, if
            Prosper,  Inc.  were to  prevail  in its  complaint  there  would be
            serious negative financial  consequences  resulting from utilization
            of  our  cash  reserves.  Moreover,  such  an  action  could  divert
            management's time and efforts away from the business of the Company.

            Kansas City Explorers

            The  Company is a  defendant  in a lawsuit in the  Circuit  Court of
            Platte  County,  Missouri,  "Kansas City  Explorers  vs.  Innovative
            Software" case no.  04CV82050 in which the claimant is seeking money
            for  advertising  which it alleges is still  due,  and have  alleged
            damages of $50,028.  The claimant has been court  ordered to produce
            answers to certain discovery requests of the Company which they have
            failed to produce.  Management  intends to  aggressively  defend the
            claim based upon the lack of contract  between the parties,  lack of
            proof of damages,  as well as minimal proof of advertising  services
            actually performed for Company products and services.

(5) Convertible Notes and Derivative Instrument Liabilities

Derivative financial instruments

The Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.

The Company reviews the terms of convertible debt and equity  instruments issued
to determine whether there are embedded  derivative  instruments,  including the
embedded conversion option, that are required to be bifurcated and accounted for
separately as a derivative  financial  instrument.  In  circumstances  where the
convertible  instrument contains more than one embedded  derivative  instrument,
including  the  conversion  option,  that  is  required  to be  bifurcated,  the
bifurcated  derivative  instruments  are  accounted  for as a  single,  compound
derivative instrument. Also, in connection with the sale of convertible debt and
equity instruments,  the Company may issue freestanding options or warrants that
may,  depending  on their  terms,  be  accounted  for as  derivative  instrument
liabilities,  rather  than as equity.  The  Company  may also  issue  options or
warrants to  non-employees  in connection with consulting or other services they
provide.

Certain instruments,  including  convertible debt and equity instruments and the
freestanding  options and warrants issued in connection  with those  convertible
instruments,  may be subject to  registration  rights  agreements,  which impose
penalties for failure to register the underlying common stock by a defined date.
If  the  convertible  debt  or  equity  instruments  are  not  considered  to be
"conventional",  then the existence of the potential  cash  penalties  under the
related  registration  rights  agreement  requires that the embedded  conversion
option be accounted for as a derivative  instrument  liability.  Similarly,  the
potential cash penalties  under the related  registration  rights  agreement may
require us to account for the  freestanding  options and warrants as  derivative
financial instrument  liabilities,  rather than as equity. In addition, when the
ability to physical or net-share settle the conversion option or the exercise of
the  freestanding  options or warrants is deemed to be not within the control of
the company,  the embedded conversion option or freestanding options or warrants
may be  required  to be  accounted  for  as a  derivative  financial  instrument
liability.

                                       8
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


Derivative financial instruments are initially measured at their fair value. For
derivative  financial  instruments  that are accounted for as  liabilities,  the
derivative  instrument  is  initially  recorded  at its fair  value  and is then
re-valued at each  reporting  date,  with changes in the fair value  reported as
charges or credits to income. For option-based derivative financial instruments,
the Company uses the Black-Scholes  option pricing model to value the derivative
instruments.

If freestanding  options or warrants were issued in connection with the issuance
of  convertible  debt  or  equity  instruments  and  will  be  accounted  for as
derivative  instrument  liabilities (rather than as equity),  the total proceeds
received  are  first   allocated  to  the  fair  value  of  those   freestanding
instruments.  If the freestanding options or warrants are to be accounted for as
equity   instruments,   the  proceeds  are  allocated  between  the  convertible
instrument and those derivative equity instruments, based on their relative fair
values.  When  the  convertible  debt or  equity  instruments  contain  embedded
derivative   instruments  that  are  to  be  bifurcated  and  accounted  for  as
liabilities,  the total proceeds  allocated to the convertible  host instruments
are  first  allocated  to the  fair  value  of  all  the  bifurcated  derivative
instruments.  The  remaining  proceeds,  if  any,  are  then  allocated  to  the
convertible instruments themselves, usually resulting in those instruments being
recorded at a discount from their face amount.

To the  extent  that the  fair  values  of the  freestanding  and/or  bifurcated
derivative  instrument  liabilities  exceed  the  total  proceeds  received,  an
immediate  charge to income is  recognized,  in order to  initially  record  the
derivative instrument liabilities at their fair value.

The discount  from the face value of the  convertible  debt,  together  with the
stated interest on the instrument,  is amortized over the life of the instrument
through periodic charges to income, usually using the effective interest method.
When the instrument is convertible  preferred stock,  the dividends  payable are
recognized as they accrue and,  together with the periodic  amortization  of the
discount, are charged directly to retained earnings.

The classification of derivative instruments, including whether such instruments
should be recorded as  liabilities or as equity,  is  re-assessed  periodically,
including at the end of each reporting period. If re-classification is required,
the fair value of the derivative  instrument,  as of the determination  date, is
re-classified. Any previous charges or credits to income for changes in the fair
value of the  derivative  instrument  are not  reversed.  Derivative  instrument
liabilities are classified in the balance sheet as current or non-current  based
on whether or not net-cash  settlement  of the  derivative  instrument  could be
required within twelve months of the balance sheet date.

In January 2006 the Board of Directors of the Company approved the raising of up
to  $1,000,000  via the issuance of promissory  notes to  accredited  investors.
These notes have a term of one year, are convertible into shares of common stock
of the Company at a 30%  discount to a future  Qualified  Financing  (as therein
described),  and have 20%  warrant  coverage at a strike  price of $0.05.  As of
March 31, 2006, the Company had raised $100,000 under such notes.

The warrants have been accounted for as derivative  instrument  liabilities (see
below) in  accordance  with EITF 00-19,  "Accounting  for  Derivative  Financial
Instruments  Indexed To, and  Potentially  Settled  In, a  Company's  Own Common
Stock"  (EITF  00-19).  Accordingly,  the  initial  fair value of the  warrants,
amounting to an  aggregate  of $1,620 was  recorded as a  derivative  instrument
liability. The fair value of the warrants was determined using the Black-Scholes
valuation model,  based on the market price of the common stock on the dates the
Warrants were issued,  an expected  dividend  yield of 0%, a risk-free  interest
rate based on constant  maturity rates  published by the U.S.  Federal  Reserve,
applicable to the life of the  Warrants,  expected  volatility of 114%,  and the
five year life of the Warrants.  The Company is required to re-measure  the fair
value of the warrants at each reporting period.

                                       9
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


Because  the  conversion  price  of the  Convertible  Notes  is not  fixed,  the
Convertible Notes are not  "conventional  convertible debt" as that term is used
in EITF 00-19.  Accordingly,  the Company is required to  bifurcate  and account
separately  for  the  embedded  conversion  options,  together  with  any  other
derivative instruments embedded in the Convertible Notes.

The conversion  option related to each  Convertible Note was bifurcated from the
Convertible  Note  and  accounted  for  separately  as a  derivative  instrument
liability (see below). The bifurcated embedded derivative instruments, including
the embedded conversion options which were valued using the Flexible Monte Carlo
Simulation  methodology,  were  recorded  at  their  initial  fair  value  of an
aggregate of $63,571.

The discount from the face amount of the  Convertible  Notes  represented by the
value  assigned to the Warrants and bifurcated  derivative  instruments is being
amortized over the period to the due date of each  Convertible  Note,  using the
effective interest method. Amortization for the period ending March 21, 2006 was
$7,109.

A summary of the  Convertible  Notes and  derivative  instrument  liabilities at
March 31, 2006, is as follows:

Convertible Notes; 10% per annum; due March 30,
2007                                                              $100,000
Less: unamortized discount related to warrants
and bifurcated embedded derivative instruments                     (58,082)
                                                          -----------------
Total carrying value at March 31, 2006                             $41,918
                                                          =================

Derivative financial instrument liabilities

We use the Black-Scholes  valuation model to value the Warrants and the embedded
conversion option components of any bifurcated embedded  derivative  instruments
that are recorded as derivative liabilities.

In valuing the Warrants and the embedded  conversion  option  components  of the
bifurcated embedded derivative instruments,  at the time they were issued and at
March 31,  2006,  we used the market  price of our  common  stock on the date of
valuation,  an expected  dividend  yield of 0% and the  remaining  period to the
expiration date of the warrants or repayment date of the Convertible  Notes. All
warrants and conversion options can be exercised by the holder at any time.

Because  of the  limited  historical  trading  period of our common  stock,  the
expected  volatility  of  our  common  stock  over  the  remaining  life  of the
conversion  options and Warrants has been estimated at 50%. The risk-free  rates
of return  used were based on  constant  maturity  rates  published  by the U.S.
Federal Reserve,  applicable to the remaining life of the conversion  options or
Warrants.

                                       10
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


At March 31, 2006, the following derivative  liabilities related to common stock
Warrants and embedded derivative instruments were outstanding:

<TABLE>
<CAPTION>
                                                                   Exercise                                       Value -
                                                                   Price Per              Value - Issue         March 31,
   Issue Date      Expiry Date                                       Share                    Date                2006
----------------- --------------- ----------------------------    ------------------    -----------------    -----------------

<S>                   <C>            <C>                        <C>                      <C>               <C>
       1/20/2006       1/20/2011       120,000 warrants           $             0.05       $          360    $             540

       2/10/2006       2/10/2011       280,000 warrants           $             0.05       $        1,260    $           1,260
                                                                                                             -----------------

Fair value of freestanding derivative instrument liabilities for warrants                                    $           1,800
                                                                                                             -----------------

                                                                                                                 Value -
                                                                                         Value - Issue          March 31,
   Issue Date      Expiry Date                                                                Date                 2006
----------------- --------------- ----------------------------    ------------------    -----------------    -----------------

       1/20/2006       1/20/2011       120,000 warrants                                 $          23,571    $          16,071

       2/10/2006       2/10/2011       280,000 warrants                                 $          40,000    $          40,000
                                                                                                             -----------------

Fair value of bifurcated embedded derivative instrument liabilities
      associated with the above convertible notes                                                            $          56,071
                                                                                                             -----------------

Total derivative financial instruments                                                                       $          57,871
                                                                                                             =================
</TABLE>

The following table reflects the number of common shares into which the
aforementioned derivatives are indexed at March 31, 2006:

Common shares indexed:
      Embedded derivative instruments                                 3,571,429
      Freestanding derivatives (warrants)                               400,000
                                                                    -----------
                                                                      3,971,429
                                                                    ===========

(7)      Basis of Reporting

The accompanying  consolidated  financial statements have been prepared assuming
that the Company  will  continue as a going  concern  for a  reasonable  period.
However,  during July,  2004,  the Company spun off its EPMG  operations,  which
represented a significant portion of its revenue producing operations to certain
shareholders  of the  Company.  During  April 2005,  the Company  spun off Triad
Media, further curtailing future operations.  The Company has incurred a loss of
$241,151  and has working  capital  and  stockholder  deficits  of $608,063  and
$541,980 at March 31, 2006.  In addition,  the Company  currently has no revenue
generating  operations.  These  conditions  raise  substantial  doubt  about the
Company's ability to continue as a going concern.

                                       11
<PAGE>

                     INNOVATIVE SOFTWARE TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


Management is currently  engaged in seeking  merger and  acquisition  candidates
within  the  technologies  industry,  which  have  revenue  producing  and  cash
generating  operations.  While management has identified a number of prospective
acquisition  targets,  there can be no assurance  that any  acquisition  will be
completed or that this strategy would be successful. In addition,  management is
seeking to raise additional capital to support its operations until a successful
acquisition  or  acquisitions  can be completed.  There can be no assurance that
management will be able to acquire additional capital at acceptable terms, if at
all.

The  accompanying   consolidated   financial   statements  do  not  include  any
adjustments that might become necessary should the Company be unable to continue
as a going concern.

(8) Subsequent Events

In April 2006 the Company issued 200,000 shares of its common stock to settle an
outstanding legal account payable of $45,073. The shares were issued pursuant to
the  exemption  under  Section 4(2) of the  Securities  Act of 1933, as amended,
based on the  recipient's  access to  information  regarding the Company and its
sophistication in making investments of this nature.


                                       12
<PAGE>



Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion includes statements that are forward looking in nature.
The accuracy of such statements  depends on a variety of factors that may affect
the  business  and  operations  of the  Company.  Certain of these  factors  are
discussed under "Business - Factors  Influencing  Future Results and Accuracy of
Forward-Looking Statements" included in Part 1 of this report. When used in this
discussion,  the words  "expect(s)",  "feel(s)",  "believe(s)",  "will",  "may",
"anticipate(s)" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,  and
actual  results  could  differ  materially  from those  projected.  Readers  are
cautioned not to place undue reliance on these forward-looking  statements,  and
are urged to carefully review and consider the various disclosures  elsewhere in
this Form 10-KSB.

Overview

The following  discussion  summarizes  information about our accounting policies
and practices and information  about our operations in a comparative  manner for
the three months ended December 31, 2006 and 2005. Our  management's  discussion
and analysis of financial  condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes thereto
included elsewhere herein.

Discontinuance of Business

Historically,  we have been engaged primarily in the development,  marketing and
delivery  of Internet  websites,  database  management  programs,  and  business
educational programs, generally to individuals,  throughout the United States of
America  through  our EPMG and Triad  subsidiaries.  In July  2004,  we spun off
assets,  liabilities  and  operations  of EPMG  located  in Utah  pursuant  to a
settlement  agreement with the former principals,  but did not exit the business
at that time. In March of 2005,  our board of directors  determined to exit this
business  and  undertake a strategy  of growth  through  acquisition  of private
companies  and internal  product and services  development  focused on small and
medium  sized  businesses  and the medical  market,  and spun off Triad in April
2005. As a result,  effective  April 20, 2005, we were no longer engaged in this
business and had no continuing involvement with EPMG or Triad.

For the  remainder  of the  2005  calendar  year  the  Company  had no  business
operations  and sought to engage in a business  combination  with a company with
operations.  As a result  of the sale of Triad we are no longer  engaged  in the
development,  marketing and delivery of business-type  educational  programs and
also had no continuing involvement with the business of EPMG.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations
are based upon the Company's consolidated financial statements,  which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America. The preparation of these financial statements requires
us to make  estimates and judgments  that affect the reported  amounts of assets
and  liabilities,  revenues and expenses,  and related  disclosure of contingent
assets and liabilities at the date of the Company's financial statements. Actual
results  may  differ  from  these  estimates  under  different   assumptions  or
conditions.

Critical  accounting  policies  are  defined  as those  that are  reflective  of
significant  judgments and  uncertainties,  and potentially result in materially
different  results under different  assumptions  and  conditions.  The Company's
critical  accounting  policies are discussed in its annual report on Form 10-KSB
for the year ended December 31, 2005.

                                       13
<PAGE>

Results of Operations

Three months  ended March 31, 2006  compared to the three months ended March 31,
2005.

Revenues

Revenues  for the  three  months  ended  March  31,  2006 and 2005 were $-0- and
$277,019,  respectively.  The Company currently has no operations and is seeking
an appropriate acquisition candidate.

Cost of Sales and Margins

Cost of sales for the three  months  ended March 31, 2006 and 2005 were $-0- and
$11,819, respectively.

General and Administrative Expenses

General and  administrative  expenses  for the three months ended March 31, 2006
and 2005 were $239,746 and $857,029,  respectively,  representing  a decrease of
72%. General and  administrative  expenses  consisted  primarily of salaries and
wages,  professional  fees,  rent,  travel  expenses,  payroll taxes,  telephone
expenses and other general and administrative expenses.

Commissions and Other Selling Expenses

Selling  expenses  for the three  months ended March 31, 2006 and 2005 were $-0-
and $162,296, respectively.  Selling expenses consisted primarily of commissions
paid  to  sales  associates  as  well  as  marketing  and  advertising  expenses
associated with key products and services.

Other Income (Expense)

Other income (expense),  for the three months ended March 31, 2006 and 2005 were
$298 and $12,920, respectively,  representing a decrease of 98%. The decrease is
primarily attributable to a decrease in interest income from our financing notes
receivable balance.

Income Taxes

Our  provision  from income taxes  amounted to $1,703 for the three months ended
March 31, 2006  compared to a provision of $-0- for the three months ended March
31, 2005.

Net Loss

Our net loss for the three months ended March 31, 2006  amounted to  ($241,151),
compared to a net loss of ($741,205) for the period ended March 31, 2005.

Liquidity and Capital Resources

Our  consolidated  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern for a  reasonable  period.  However,
during the period ended March 31,  2006,  we incurred a loss of  ($241,151)  and
working capital and stockholder deficits of $608,063 and $541,980, respectively.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.

                                       14
<PAGE>

Management is currently  seeking merger and  acquisition  candidates  within the
technologies  industry,   which  have  revenue  producing  and  cash  generating
operations.  While we have identified a number of other prospective  acquisition
targets,  there can be no assurance  that any  acquisition  will be completed or
that this strategy would be successful.  In addition, we anticipate that we will
need to raise  additional  capital to support our operations  until a successful
acquisition or acquisitions can be completed.  There can be no assurance we will
be able to acquire additional capital at acceptable terms, if at all.

As of March 31, 2006 we had cash and other reserves  amounting to $206,517.  Our
financial  statements do not include any adjustments that might become necessary
should the Company be unable to continue as a going concern.

At March 31, 2006 we had current assets of $323,525, which represents a decrease
of $290,166  over current  assets as of December 31, 2005.  At March 31, 2006 we
had cash on hand of $206,517,  which represents an increase of $176,179 over the
balances as of December 31, 2005.

At March 31, 2006 we had current  liabilities  of $931,588  which  represents  a
decrease of $256,143 over current liabilities as of December 31, 2005.

At March 31, 2006 our working  capital  deficit  increased  to  ($608,063)  from
($574,039)  as of December  31,  2005.  Our working  capital  will decline as we
address our new business development initiatives.

We have no material commitments for capital  expenditures.  Capital expenditures
for the three months ended March 31, 2006 amounted to $-0-.

We  currently  do not  have a stock  option  or  stock  purchase  plan.  We also
currently do not have any employee  benefit  plans that would require the use of
our securities.

Off Balance-Sheet Arrangements

The Company has no material off-balance sheet arrangements as of March 31, 2006.

Item 3. Controls and Procedures

(a)   The Chief Executive  Officer and Chief  Financial  Officer of the Company,
      with  the  participation  of  the  Company's  management,  carried  out an
      evaluation of the effectiveness of the Company's  disclosure  controls and
      procedures  pursuant  to Exchange  Act Rule  13a-14 as of March 31,  2006.
      Based on that  evaluation,  the  Chief  Executive  Officer  and the  Chief
      Financial  Officer  believe  that, as of the date of the  evaluation,  the
      Company's disclosure controls and procedures are effective in making known
      to them  material  information  relating  to the  Company  (including  its
      consolidated subsidiaries) required to be included in this report.

(b)   There were no  changes  in the  Company's  internal  controls  or in other
      factors that could  significantly  affect internal controls,  known to the
      Chief Executive Officer or the Chief Financial Officer,  subsequent to the
      date of the evaluation.

                                       15
<PAGE>


PART II -         OTHER INFORMATION

Item 1.  Legal Proceedings

From  time to time,  we are  involved  in  litigation  concerning  our  business
operations.  Management  believes that the  litigation in which we are currently
involved is not  reasonably  likely to be material to its  financial  condition,
results of its  operations or its cash flows,  other than the  litigation  noted
below.

SEC Investigation

On June 24, 2003 the Securities and Exchange  Commission ("SEC") issued a formal
order of  investigation,  authorizing the  investigation  of certain  securities
matters.  The SEC staff has taken the  testimony  of  certain  officers  and has
informed us that it intends to take additional testimony. The SEC staff has also
issued additional requests for the voluntary  production of documents.  Prior to
the issuance of the order, we had voluntarily provided documents and information
to the SEC staff in response to informal,  non-public inquiries by the staff. On
April 8th, 2005 the Independent  Committee of the Board of Directors turned over
the results of its  investigation  to the SEC and we intend to continue to fully
cooperate with the SEC in its investigation.

Prosper, Inc. Complaint

Subsequent  to the EPMG  asset  disposition,  as  discussed  above,  the  former
principals,  under the new name of Prosper,  Inc. filed a complaint that seeks a
refund to the benefit of Prosper of certain  reserve funds amounting to $580,000
that are due to former vendors.  Under the EPMG Settlement Agreement,  we agreed
to pay certain reserves  potentially owing to third-party vendors upon specified
conditions.  The lawsuit  alleges that we have  breached the  obligation  to pay
these reserves,  but we contest that the conditions for these payments have been
satisfied and/or contest the amounts and payees of the payments that are alleged
to be owed by us.

Although we believe that these  allegations  do not have any merit,  if Prosper,
Inc. were to prevail in its complaint there would be serious negative  financial
consequences resulting from utilization of our cash reserves.  Moreover, such an
action could divert  management's time and efforts away from the business of the
Company.

Kansas City Explorers

The Company is a defendant in a lawsuit in the Circuit  Court of Platte  County,
Missouri,  "Kansas City Explorers vs. Innovative Software" case no. 04CV82050 in
which the claimant is seeking  money for  advertising  which it alleges is still
due, and have alleged damages of $50,028. The claimant has been court ordered to
produce  answers to certain  discovery  requests of the Company  which they have
failed to produce.  Management  intends to  aggressively  defend the claim based
upon the lack of contract between the parties, lack of proof of damages, as well
as minimal proof of advertising services actually performed for Company products
and services.

                                       16
<PAGE>


Item 3.  Defaults upon Senior Securities

      (b) There has not been any material  arrearage in the payment of dividends
      on any preferred stock.

Item 6. Exhibits.

      The exhibits required by this item are listed in the Index to Exhibits set
      forth at the end of this Form 10-QSB.

                                       17
<PAGE>


                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                    Innovative Software Technologies, Inc.

Date:        May 24, 2006           /s/ Peter M. Peterson
                                    --------------------------------------------
                                    Peter M. Peterson
                                    Chairman of the Board,
                                    Chief Executive Officer, and President

                                    /s/ Christopher J. Floyd
                                    --------------------------------------------
                                    Christopher J. Floyd
                                    Chief Financial Officer,
                                    Vice President of Finance, and Secretary

                                       18
<PAGE>


                                INDEX TO EXHIBITS

Exhibit
Number                                      Description

31.1        Certification  of Chief  Executive  Officer of  Innovative  Software
            Technologies,  Inc.  pursuant to Rule  13a-15(e) or 15d-15(e) of the
            Securities Exchange Act of 1934, as amended.

31.2        Certification  of Chief  Financial  Officer of  Innovative  Software
            Technologies,  Inc.  pursuant to Rule  13a-15(e) or 15d-15(e) of the
            Securities Exchange Act of 1934, as amended.

32.1        Certification  of Chief  Executive  Officer of  Innovative  Software
            Technologies, Inc. pursuant to 18 U.S.C. 1350.

32.2        Certification  of Chief  Financial  Officer of  Innovative  Software
            Technologies, Inc. pursuant to 18 U.S.C. 1350.

                                       19